Suze Orman Shows True Colors With Her Approved Prepaid Debit Card

If you haven’t heard by now, personal finance guru Suze Orman has launched a new prepaid debit card called The Approved Card. That’s right, another celebrity-backed card similar to what Russell Simmons has done, and what the Kardashians tried to do. But since this card is being endorsed by a well-respected personal finance expert it has to be a great card, right? Well, that’s where things get a little murky.

These prepaid debit cards are notoriously marketed toward those on the lower end of the economic spectrum because these people often can’t open or maintain accounts at a traditional bank for a variety of reasons. Without a bank, and therefore a checking account and debit card, these prepaid cards can be used to store money in lieu of a bank and also be used for making purchases, obtaining cash at an ATM, and so on. But like everything, this doesn’t come without a cost. The company offering these products need to make money somehow, so it usually means charging fees.

Well, this is where things get interesting. Suze has long been a champion of getting out of debt, being smart with your money, and avoiding excessive fees. Unfortunately, she wants you to use her card that comes stacked with fees. Let me run through a few of them.

$3.00 to purchase the card

$3.00 per month just to have the card (first month’s fee is waived)

$2.00 for ATM withdrawals (generally) plus ATM fees

$1.00 for a balance inquiry

$2.00 to speak to customer service (you get one free call per month)

$2.00 for paper statement

Ok, so there are a few of the fees most users would find themselves subject to, although there are others. You can see all the fees here. Now, one might argue that these fees are better than what some other prepaid debit cards charge, and that is generally the case. But these products as a whole are not consumer-friendly by any stretch of the imagination. I mean is this a debit card or am I going to jail? I only get one free phone call for crying out loud!

The thing to keep in mind here is that the typical person using a card like this is not going to be loading it up with thousands of dollars. Because the amounts will generally be lower, these fees can add up and put a dent in the balance. Here’s an example:

Let’s assume somebody buys this card and loads it up with $250 from their paycheck to have some spending money. They will get charged $3.00 to obtain the card. Then you can figure the person will probably go to the ATM for cash maybe once a week. If they don’t have direct deposit set up or it’s done on a non-Allpoint machine it will be a $2.00 fee for each withdrawal, so that’s another $8.00. Don’t forget to add the $2-3 fee the ATM operator will charge as well. Doing the math, in the first month doing nothing more than obtaining the card and making a few withdrawals this person would be charged upwards of $20 in fees. If the balance remained around $250 for the month they are essentially being charged 8% in fees. Is it better than a high-interest credit card? Sure. But when you’re talking about a segment of the population that might be only keeping a couple hundred dollars on the card, just regular use and a few withdrawals every month could basically mean they are being charged 10% to use their own money, and could amount to a few hundred dollars a year in fees.

Beyond the Fees

The fees are obviously what many people will focus on, but there is more to it than that. Suze is marketing this card as a revolutionary new way to build credit. One feature is that you get unlimited access to your credit report. The problem is it’s only through TransUnion and it doesn’t include the almighty credit or FICO score that she talks about ad nauseum because of her association with it. Besides, you can already get free credit reports each year from all three of the credit bureaus, so this “feature” isn’t much of a benefit for most people. But the real kicker is that some claims are being made that this card can help you build credit by reporting your spending to TransUnion. The problem is when you read the fine print in the terms:

The information we share with TransUnion concerning your Approved Card account will not appear in your credit report.

When asked about this, a company spokesperson said:

The Approved Card from Suze Orman is trying to transform the way the credit bureaus view Americans’ spending habits. This is an experiment and we won’t know for 18 to 24 months whether people will be able to get credit for responsibly handling their money.

This is interesting. So basically Suze Orman is running an experiment on real people and their money? She’s promising consumers that this debit card is different because they are sharing some information with TransUnion, yet there’s no guarantee it will really work. And even if it would somehow change the way credit reporting is done we won’t know for two years. Now I’m no expert in this area, but it seems like putting the cart before the horse. Rather than experiment with real people, largely those already in a less than stellar financial situation, I’d like to see an agreement in place with the credit bureaus about how they will use the data before just hoping it will make a difference.

From the Approved Card’s website:

As part of this project we are sharing your Approved Card purchase, payment and other transaction information with TransUnion so that they can help us understand the correlation between that information and the information that is currently included in most consumer credit reports. The transaction data we are providing to TransUnion is not attributed or identifiable to you or any other Approved Cardholder.

As you can see, all the data about your spending is completely anonymous. So even if this project did in fact pave the way to new credit reporting standards, none of your spending history tied to this card would ever have an impact on your personal credit because the data they received was not attributed or identifiable to you.

The bottom line is if you’re looking for a way to build a credit history because you don’t otherwise have access to lines of credit you’re much better off going with a secured credit card instead. These work almost exactly the same as this and other prepaid debit cards, and as long as you put money on the card anyone can get one.

Suze Turns on Bloggers

The card itself as outlined above isn’t necessarily good, nor is it incredibly bad. It’s just an odd financial product that has a limited market and makes a few dubious assumptions. The issue some reporters and financial bloggers have taken up is that this card is being put out there by Suze Orman, who has long provided financial advice for the middle class, helped people get out of debt, and make better choices with their money. Obviously, hawking a prepaid debit card stacked with fees, targeting people without a lot of money, and suggesting it may help build credit like never before, has irked a few people and they questioned her motives on blogs and on twitter.

This is where things get ugly. Suze has resorted to name calling. Two personal finance bloggers, PT Money and Briana, have taken the brunt of her insults. You can read many tweets there, but these are the two that sort of stood out:

Many others began jumping in on that discussion last night and it devolved into a bunch of “you’re wrong!” tweets along with links to any article that spoke favorably of the Approved card. Of course, Suze made sure to point out that those articles were written by “legit” reporters, so clearly she doesn’t have any respect for people covering finance unless they work at a major media outlet.

Either way, I found last night’s twitter discussion very uncouth, even for Suze. She is known for her no-nonsense attitude on her show, but what happened here was over the top. She has done a good job of turning some fans off. Think she will come to the 2012 Financial Blogger Conference? Or maybe the Approved Card will be a sponsor. That would be interesting. Of course, we aren’t legit and I’m sure she wouldn’t want to be caught dead being around a few hundred nobodies.

So, what do you think? Either about the card or Suze’s reaction to disagreeing bloggers?

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

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